Crypto lender Celsius partly to blame for Terra collapse, says Nansen

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Blockchain analytics firm Nansen has linked Terra’s USD stablecoin detachment to seven major crypto wallets, including a wallet associated with crypto lending platform Celsius, whose massive UST selloffs have sparked a run. rush out.

UST maintained its peg to the US dollar via a complex network of arbitrageurs – traders who bought and sold the token, as well as a related and volatile crypto called LUNA, to take advantage of price differences between exchanges and trading pools. DeFi liquidity.

This all worked out pretty well from the launch of UST in December 2020 – until the market lost confidence in the mechanism earlier this month, sending the network into a death spiral that plunged UST to 0.02. $ and LUNA from well over $100 to fractions of a cent.

Nansen’s report, released on Friday, claims that seven arbitrageurs contributed to the unpecking of UST by flooding shallow liquidity pools on Curve with huge amounts of UST.

Liquidity providers on Curve, then the largest DeFi protocol by total value locked, are incentivized to maintain token prices in liquidity pools by balancing their supplies with other tokens of similar price but huge drawdowns and entries can temporarily depress the price of the tokens. suddenly.

Using on-chain data, Nansen tracked down seven power users who may have triggered depeg when they rushed to sell huge amounts of UST on Curve.

The seven wallets pulled UST from Anchor – Terra’s lending product that was offering nearly 20% returns before its collapse – sent them to Ethereum via the Wormhole multi-chain bridge, then traded them on Curve , the largest DeFi protocol, against other stablecoins.

Flood of sales

Just before the depeg, all seven wallets, including the Celsius-linked one, sent so much UST to Curve that the stablecoin’s price slipped.

Luna Foundation Guard – a Terra-related organization that attempted to defend UST’s peg – attempted to counter this by withdrawing approximately 150 million UST from Curve on May 7 and adding other stablecoins into the Curve pool .

But soon after, five more addresses sold another deluge of UST on Curve. LFG again tried to defend the peg by withdrawing 189.6 million UST. The war continued into the morning of May 8.

Between May 7 and May 10, Nansen reported that the top 20 addresses pulled 2B UST from Anchor, or about 11% of UST’s market capitalization at the time. The block reported on May 13 that Celsius withdrew at least $500 million in funds from Anchor.

But LFG’s attempts to balance the Curve pool have been insufficient in the face of relentless selling. UST inflows to centralized exchanges like Binance gained momentum on May 9. This peaked on May 10, when 165 million UST were sent to centralized exchanges.

The on-chain data challenges the popular belief that a single “bad actor” crashed Terra’s US-dollar stablecoin earlier this month.

“While many of these wallets likely acted independently, collectively the arbitrageurs influenced a liquidity imbalance that ultimately led to the UST/LUNA death spiral,” Nansen tweeted.

Even without Anchor, Celsius still offers interest rates of up to 9.32% on stablecoin deposits, as long as the interest is paid in CEL, the platform’s utility token. The token fell sharply as the UST de-indexed from around $2.17 to $0.63.

Do Kwon, the founder of Terra, has since relaunched LUNA on a new blockchain, Terra 2.0. The new chain does not feature an algorithmic stablecoin.

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